💼 Net LTV (sometimes called Contribution LTV)

Net LTV (sometimes called Contribution LTV)#

Customer lifetime value after subtracting variable and serving costs.

Important

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What it is#

Net LTV (also Contribution LTV) is the profit contribution a customer generates over their lifetime, after the direct cost of serving them. Where Gross LTV is pure revenue, Net LTV adjusts for gross margin, answering “how much do we actually keep?”.

Formula#

\[\text{Net LTV} = \text{Gross LTV} \times \text{Gross Margin \%} = (\text{ARPU} \times \text{Customer Lifetime}) \times \text{Gross Margin \%},\]

with gross margin $= (\text{Revenue} - \text{COGS}) / \text{Revenue}$ and customer lifetime $\approx 1/\text{churn}$.

Worked example#

Continuing the running example — ARPU $50/month, 5% churn (20-month lifetime) — gives Gross LTV $1,000. At 70% gross margin:

\[\text{Net LTV} = 1{,}000 \times 0.7 = 700.\]

The customer pays $1,000 in revenue, but the business keeps $700 in profit contribution.

Why it’s the number that matters#

Net LTV is the realistic measure of customer value and the correct numerator for unit economics: the healthy benchmark is

\[\frac{\text{Net LTV}}{\text{CAC}} \ge 3.\]

Investors and CFOs favour Net over Gross LTV because revenue without margin is not sustainable. As with Gross LTV, prefer retention-curve or predictive lifetime estimates over a flat $1/\text{churn}$ when the data allows.

Theme: Business & Growth Analytics · All terminology

Hint

Mind map — connected ideas

Gross LTV (Customer Lifetime Value) · LTV:CAC Ratio · Gross Margin · Predictive LTV (pLTV) · Revenue per User (RPU / ARPU)

Hint

More in Business & Growth Analytics

Blended CAC (Customer Acquisition Cost) · CAC (Customer Acquisition Cost) · Cannibalization · Channel-Specific CAC (Customer Acquisition Cost) · Churn · Cohort · Cohort-Based LTV (Simple Version) · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Lifetime · Customer Segmentation · D2C (Direct-to-Consumer)